The following opinion piece was posted by the Breg Blog Admin. team on 26th August 2014.
So much time and so little to do…
The spin from government and vested interests in the construction industry regarding housing need continues. Since implementation in March 2014, the so-called “BCar Effect” (some call it the BCAR Crash) has resulted in a drop of 50% in the levels of commencement notices nationwide as a result of consumers and professionals being reluctant to incur increased costs and liability as a result of this defective regulation. Many plans to address “the housing problem” have come to the fore. The question is, which plan to go for?
For readers we have summarised some of the more notable “proposals” from industry and commentators – see links below.
Certainly by 2006/ 2007 we were producing far too many dwellings – half of the total output for the UK with 1/20th the population. We needed a period of depressed construction output for this excess supply to work its way through the system. The question is, has that happened and is it time to start increasing output again?
We think the ‘number’ of houses and dwellings, dwelling types etc. could benefit from a far more exhaustive analysis based on current and projected population growth, demographics and land-use/ housing stock availability. Current yields on average prices are approaching industry standard so the increase in rental level may well be appropriate. Affordability has improved for purchasers on paper, notwithstanding historically low mortgage approvals. Rob Kitchin’s Blog “Ireland after Nama” (see link below) has a good comparison of both the recent ESRI report and Housing Agency housing supply reports – both use a fairly standard housing projection model using housing stock, population projections, household size, vacancy and obsolescence.
The situation is indeed complex and we are being hit with conflicting messages – vulture funds are scooping up as much trophy tenanted properties ‘off-market’ as they can get, homelessness is on the rise, a construction boom is appearing in Dublin but output is still depressed beyond the Pale. While the nation’s sovereign debt rating is dependent on the performance of the world’s biggest landowner (NAMA), an increase in property prices will benefit the balance sheet of the government and banks with which the country now is so intertwined. David Hall suggested possible market manipulation by banks in a recent article in the Irish Examiner (see below).
Housing Supply may not improve within the next 12-15 months.
Prices for the past few years were below cost making it nonviable even for solvent developers to build – they would be building out sites at a negative value and crystalising losses. Construction firms have contracted over the past 5 years. Some organisations suggest over 90k construction workers are on the dole, excluding construction professionals. Any increase in activity may lead to a hardening of tender rates (as is happening currently) and consequent increase in sales prices. Materials costs have continued to rise over the intervening period as most of our building material and components are imported. The supply of cheap affordable sites to the market has been restricted by NAMA.
There are a number of factors other than market demand that affect building supply. Here are three:
- Commencements: paper commencement figures where notice has been given to local authorities of the start of construction have halved since the implementation of the new building regulations in March. This fall-off has been masked somewhat due to increased levels for January and February- owners and builders getting started (on paper) before the increased costs of S.I.9 kicked in. We are set, if the trend continues, to have little or no increase on construction output from last year, a historic low. We have commented on detailed figures in the blog previously (see link below).
- Planning application levels for residential projects are still at historic lows. Even if these figures increased, a realistic timescale from lodgment of a planning application to completion of one house would be in the region of 15 months- close to the end of the lifetime of this government (see link below).
- Existing Planning Permissions for complex phased speculative developments may not be appropriate to the current market. There appears to be an excess of apartment planning permissions etc. The planning process, including 3rd party appeals, additional information submissions etc, particularly multi-unit developments, have a longer lead-in time than one-off houses- up to 24 months. It is the same problem as these sites will not provide dwellings for some time. Some of these permissions pre-date Part L of the regulations 2011 and will require significant amendment and revisions.
Commencement notices 2014 (source Link2Plans link:)
The current rental problem in Dublin could have been forecast earlier and measures introduced to allow for the lead-in time for dwellings to ‘come on stream’. Construction is a cyclical business- prepare for the upturn. Our current government are simply out of time to impact on a rental bubble, if one indeed exists. To improve our sovereign rating (and NAMA’s performance) and the banks’ balance sheets an increase in property prices is set to be “pumped” higher in the media. Another unforseen ‘benefit’ to increasing house prices may be the desirability for banks to foreclose and dispose of properties whose owners are in distress.
In the middle of all this we have a new (same) building control self-certification system that imposes higher costs and onerous liabilities on all concerned with little additional consumer protection. This is further restricting supply and creating a drag on the fragile recovery the industry is experiencing at present.
All-in-all not a great time for consumers.
Expect a lot more talk, and little action.
Editorials and articles referred to in the above opinion piece:
- Six ways to break down barriers in our housing market and build more homes – Independent.ie
- Irish banks ‘manipulating market’ to lift house prices | Irish Examiner
- A proposal: how to resolve the growing housing crisis – Independent.ie
- 7 steps will ‘double number of houses’ | Irish Examiner
- Editorial: Housing crisis needs considered response – Independent.ie
Other posts of interest: